Oil fell nearly $3 on Monday in a wild session that saw Brent plunge more than $5 a barrel in a wave of late, high-volume selling before paring losses as markets sought an explanation for the sudden crash.
Many traders said the sell-off appeared to have stemmed from a problem with an automated computer trading program. A top regulator at the U.S. Commodity Futures Trading Commission (CFTC) said the agency was “looking into” the trades behind the price plunge and was in contact with the exchanges.
Brent crude, which had settled at $116.66 a barrel on Friday in its seventh straight session of gains, sank from $115.20 at 1:52 p.m. EDT to $111.60 three minutes later as trading volumes – which had been muted by the Rosh Hashanah holiday – shot up.
Volumes began to retreat after that, but picked up at 2:10 p.m. EDT when Brent put in a new low of $111.50.
U.S. crude dropped from $98.65 a barrel to below $95 during the period.
“I’ve been doing this for 14 years and that’s the fastest move I’ve ever seen,” said John Gretzinger, energy risk manager at INTL-FCStone in Kansas City.
“I think it was too fast to be anything but HFT (high-frequency trading) or other algos,” he said, referring to trades based on algorithms. “We just don’t know right now, but that’s my gut feeling.”
Thirteen thousand U.S. crude lots and 10,000 Brent lots traded in one minute during the price drop, up from 131 and 152 lots respectively in the minute prior to the first waves of selling.
CME Group , where U.S. crude primarily trades, said it was unaware of any technical issue that may have contributed to the selling on the New York Mercantile Exchange (NYMEX). IntercontinentalExchange Inc , home of the Brent crude oil contract in London, declined to comment.
Scott O’Malia, a commissioner at the CFTC, said the regulator was looking at what might have been behind the sudden price plunge.
“Our people are aware of it” O’Malia told Reuters. “They are in contact with CME and ICE and are going to get to the bottom of it.”
Brent November crude closed down $2.87 at $113.79 a barrel, having traded from $117.02 to $111.50. Brent’s 200-day moving average, a key technical indicator for traders, was at $111.85 a barrel.
U.S. October crude, set to expire on Thursday, fell $2.38 to settle at $96.62 a barrel. It traded between $94.65 a barrel and $99.52 a barrel during the session.
Traders said large oil-consuming customers had used the selloff as a chance to establish new hedges, helping prices recover.
WHITE HOUSE: NO SPR ANNOUNCEMENT
The market has also been watching for any move to release crude oil from the U.S. Strategic Petroleum Reserve, which government officials have said was an option to ease the pain of high oil prices on consumers.
After the price crash, the White House said the possibility of releasing crude from the reserve remained “on the table”, but it had no further announcement.
“I haven’t seen any major producer selling or other structures in the market that would cause such a huge spike lower,” said one Wall Street oil trader, who asked not to be identified.
“And the complex seems devoid of any concrete news that would cause a selloff of such magnitude.”
Others, however, said the market may have been due for a correction after Brent rallied by more than 33 percent between the low of $88.49 a barrel on June 22 and a four-month intraday high of $117.95 a barrel on Friday.